SEC large trader reporting rule

March 24, 2014 | By: Robert A. Green, CPA

Some high-frequency-trader (HFT) clients are receiving email notices from their brokerage firms advising them to file SEC Registration Form 13H to obtain a SEC Large Trader ID number (LTID). The broker needs that LTID in order to comply with the SEC Large Trader Reporting Rule, a rule that has been in place since 2011. (Broker-dealers were required to comply with the rules by April 30, 2012.)

In my view, regulators are keen on tackling — but not necessarily blocking — HFT. They need a better handle on HFT for their own reporting and accountability to Congress. Regulators are still concerned about the flash crash from May 2010, which, along with Congress, they blame on HFT. The first step in regulation is often registration light. It’s not public so your friends won’t see what you are up to. But, it will give the SEC a means to analyze what you are doing in the markets and it may react accordingly. Perhaps the SEC can request a broker to analyze all activity for a given LTID. Bottom line, this is more government oversight for HFT, but it’s not a burden of compliance or cost. (I don’t see any fee required with Form 13H.) It would be worse to have financial-transaction taxes – something we continue to fight against – and HFT trading restrictions. (New York’s Attorney General just blocked a data provider from giving an edge to HFT customers.)

“Large Trader” is defined as a person or entity who, directly or indirectly, through the exercise of “Investment Discretion,” effects transactions in exchange-listed equities and options that equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million over the course of any calendar month … Calculating Options Traded. The Rule requires the calculation of shares and dollars of options traded as follows: Shares traded = option contracts traded * option multiplier (typically 100)… (similar option multiplier for ETFs and index options)…

… Initial Filing: A person must “promptly” file an initial Form 13H after its transactions reach the identifying activity level. The SEC states that under normal circumstances, “promptly” means 10 days.

The filing threshold is high and the filing requirement seems simple enough to do on your own. Of course, it’s always wise to consult a securities attorney with any questions. We recommend Brent Gillett JD of www.investmentlawgroup.com.

Take a look at a manual SEC Form 13H with instructions, but note you must file it electronically with the SEC EDGAR system. It asks for basic information and not much else.

If you or your broker determines you should file SEC Form 13H, don’t miss the very short 10-day deadline. Not acting can cause you a bunch of trouble. I wonder if all brokers are set up properly to make this filing analysis.